To probe the mechanism of disease caused by mutations in the NBD of NOD2 we first determined the capacity of over-expressed intact NOD2 or NOD2 with a Blau mutation (BS-NOD2) (R314W) to cross (down)-regulate TLR responses underlying TNBS-colitis. Whereas over-expression of intact NOD2 protected mice from TNBS-colitis, over-expression of BS-NOD2 failed to protect. These findings were corroborated by studies of mice bearing a knock-In mutation of NOD2 similar to that in patients with BS in which we showed that such mice were not as protected from DSS-colitis by NOD2-ligand (muramyl dipeptide, MDP) administration as was comparably treated littermate control mice. Importantly, these failure to protect was also noted in heterozygous mice in which the mutation occurred on only one allele; thus the mutated NOD2 exerted a dominant negative effect which explained the fact that the Blau mutation has an autosomal dominant effect. Studies conducted to investigate the molecular basis of these cross-regulatory defects indicated that BS-NOD2 expressed in HEK293T cells exhibit a reduced ability to oligomerize, interact with or activate RIPK2 and activate NF-kappaB. In addition, MDP-stimulated cells from BS-NOD2 KI mice fail to up-regulate expression of IRF4, a factor that has been shown to mediate NOD2 cross-regulation by de-ubiquitination of NF-kappaB signaling components. Indeed, lack of IRF4-mediated cross-regulatory function in KI cells was shown by the fact that enhanced TLR responses exhibited by these cells are suppressed by lentivirus transduction of IRF4. Overall, these studies indicate that NOD2 bearing a BS mutation lacks the ability to cross-regulate TLR responses via its inability to activate IRF4. The mutation thus renders BS patients susceptible to excessive TLR responses that have the potential to support inflammation at sterile tissue sites. Thus, the Blau mutation affecting NOD2 causes inflammatory disease by affecting NOD2 immunoregulatory function.